The US "exit tax" under IRC section 877A is usually discussed in the context of citizens renouncing US citizenship, but it applies equally to green card holders who formally give up lawful permanent resident status — a scenario directly relevant to NRIs who spent years working in the US on a green card and are now moving back to India for good. Not every returning green card holder is affected: the rules only reach "long-term residents," and only long-term residents who separately meet one of three thresholds that make them a "covered expatriate." Understanding both filters matters before assuming — or dismissing — an exit tax exposure.
Who Counts as a Long-Term Resident
You're a long-term resident for this purpose if you held a green card (lawful permanent resident status) in at least 8 of the 15 tax years ending with the year your status ends. The count is inclusive of any year in which you held the green card for even part of the year, so someone who obtained a green card partway through a calendar year and gives it up partway through another still counts both years toward the 8-of-15. Only long-term residents are exposed to the exit tax rules at all — someone who held a green card for, say, five years and abandons it is generally outside IRC 877A entirely, however large their net worth.
The Three Covered Expatriate Tests
A long-term resident becomes a "covered expatriate" — the status that actually triggers exit tax consequences — by meeting any one of three tests as of the expatriation date. The net worth test is met if your worldwide net worth is $2 million or more; unlike the other thresholds, this figure is fixed by statute and has not been adjusted for inflation, so it captures a wider share of long-tenured green card holders over time, particularly those with appreciated Indian or US real estate, retirement accounts, or employer stock. The average annual net income tax liability test is met if your average US federal income tax liability over the five tax years before expatriation exceeds an inflation-adjusted threshold — figures in this range are revised annually by the IRS, so confirm the exact threshold for your specific expatriation year against the current IRS revenue procedure before relying on it (this could not be directly verified against IRS.gov in this pass; see note below). The certification test is met — regardless of net worth or income — if you fail to certify on Form 8854 that you've complied with all US federal tax obligations for the five years preceding expatriation.
Meeting any single one of the three tests makes you a covered expatriate; you don't need to fail all three. A long-term resident well under the net-worth threshold can still become a covered expatriate purely by failing to certify five years of clean tax compliance on Form 8854.
The Mark-to-Market Exit Tax Itself
For a covered expatriate, section 877A imposes a mark-to-market regime: you're treated as if you sold your entire worldwide asset portfolio — Indian and US real estate, equities, mutual funds, business interests, essentially everything you own — at fair market value on the day before your green card status ends, and any net deemed gain above an inflation-adjusted exclusion amount is taxed as if realized. That exclusion amount is also revised annually by the IRS and needs direct confirmation for the relevant expatriation year before relying on it (see note below). The exclusion applies once, against your total net deemed gain across all covered assets combined, not separately per asset, and deemed losses on some assets offset deemed gains on others within that calculation. Separate, more complex rules apply to deferred compensation, specified tax-deferred accounts, and interests in certain trusts, so a long-term green card holder with employer retirement plans or foreign trust interests should treat those categories as a distinct sub-analysis rather than assuming the standard mark-to-market rule covers them.